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How Seniors Housing NOI Growth Compares with Other Sectors

In its analysis of commercial real estate pricing and growth, Newport Beach, Calif.-based real estate research firm Green Street Advisors projects seniors housing will experience a dip in NOI in 2018, but growth in 2020, 2021 and 2022 could outpace the broader major sector averages.

For 2018, the firm is projecting seniors housing will see NOI drop 1.0 percent—the only sector to decline. But things will begin to turn in 2019 with NOI growth of 1.1 percent. That pace will then accelerate in the three following years, with Green Street projecting NOI growth north of 3.0 percent each year. For all sectors, the firm expects growth in the mid 2.0-percent range.

Digging a bit deeper, Green Street flagged construction as a “significant concern” for 2018-2019 even though supply growth is a bit off its peak of 2016. The company flagged supply as a reason for knocking back expected long-term growth rates for the sector by a full percentage point. While seniors housing posted an adjusted annual NOI growth rate of 2.6 percent from 1994 to 2015, going forward Green Street is projecting expected long-term growth of 1.6 percent.

In addition, Green Street gave seniors housing a score of 45 on its “sector surprise” index. (Scores greater than 50 mean recent news is good, while scores below 50 mean recent news is bad). The figure for seniors housing was the worst of any sector.

On the positive side, however, Green Street is projecting a risk-adjusted expected return rate of 6.9 percent for seniors housing. That trails only manufactured housing (8.1 percent) among all property types and is above the overall major sector average of 6.0 percent. That bullish projection is fueled in part by an estimate that seniors housing property values have room for 21 percent of additional growth.